Shri Ranjit Rae, the Indian ambassador to Nepal since June 2013, played a role in developing the 12-point agreement signed by Nepal’s seven-party alliance and the Maoist party in 2005. In an interview with Madan Lamsal, Editor-in-Chief of New Business Age, he shared his observations on various contemporary issues between the two countries. Excerpts:
Many expectations were made from you when you came as Indian Ambassador to Nepal. How would you like to evaluate your tenure so far here?
It is for others to evaluate my tenure so far. As far as I am concerned this is one of the most interesting, important and challenging assignments for any Indian diplomat and it is a privilege for me to be in Nepal to contribute to further strengthening our deep rooted cooperation. India attaches highest priority to our relationship with Nepal. We want to see a peaceful, stable and democratic Nepal and we believe that one of the most important areas for cooperation is the economic sector. Economic growth and development is a prerequisite for durable peace and stability. So, I attach the highest priority to bilateral economic cooperation. India is already a very important partner of Nepal -- whether it is in Foreign Direct Investment or trade. But I still feel that the magnitude of our current cooperation is limited while the potential is enormous. I would like to focus a lot of my efforts and energy on developing our economic relationship.
Based on your experience so far, what are the impediments in developing hydropower projects in Nepal?
I think there needs to be political consensus in Nepal about the hydropower projects and right now most political parties attach a lot of priority to developing these projects because every country has to grow on the basis of the resources and comparative advantages it has. At present, Nepal’s biggest comparative advantage is its hydropower as she has very big hydropower potential. If Nepal does not utilize this, she will not be exploiting the economic opportunities of her own. I believe that now there is a growing awareness that hydropower development is critical for economic growth and development in Nepal and the government is also attaching a very high priority to it. Currently, we are in a very anomalous situation because even after having the capacity of generating 85,000 mega watts of hydropower, Nepal is suffering from 12-14 hours power cuts a day and India which is a power-deficit country is going to export 200 mega watts of power to Nepal. Since so many decades, the installed capacity of Nepal is less than 1,000 mega watts. Clearly, this is not a happy situation and has to be changed. There is a very strong determination in the decision making circles of Nepal to go ahead for the exploitation of hydropower potential.
The second issue is that Nepal has not done a single major hydropower project. It has been doing many small hydropower projects but has not done any major multi- purpose hydropower project. The first project is always more difficult but once you agree on the first project then that becomes a template for successive projects. Therefore, we hope that the first PDA will be signed soon and that can be the model for the other PDAs in the future.
Which transmission lines do you hope to complete soon?
One of the major transmission lines will be the Muzaffarpur- Dhakelbar transmission line. This is a 400 KV transmission line which is expected to be completed by the end of next year. Then there is the upgradation of some transmission lines like the Kataiya-Kushaha transmission line where there is some difficulty about some customs related matter, but we hope this will be overcome soon. Basically, India and Nepal will be linked through various 132 KV and 400 KV transmission lines. These lines will certainly facilitate power trade between the two countries.
The big power projects are mainly aimed at fulfilling the demand of Nepali people. Whatever electricity is required in Nepal will be supplied and only the surplus that may be there will be sold to India. In order to do that, you require transmission lines. The network has already been established for power transmission which will be helpful for power trade between our two countries as well in the near future. It will even be helpful for the regional or sub-regional power trading between Nepal, India, Bangladesh and Bhutan. Gradually, we are moving to much more active phase of our cooperation in the hydropower sector.
We have been talking about the importance of hydropower. You said that now there is a growing awareness in the concerned people. But have the concerned people really changed? How changed do you think they are to make hydropower happen?
Well, all the political leaders who I have met so far have committed to the development of the hydropower sector. Because they see it as the most important way for the country to move forward and develop. So, I certainly feel today there is a very broad political consensus – I don’t say everybody is on board – but it’s a very broad political consensus which was not the case earlier. If you recall the days of the signing of the Mahakali Treaty, things were really complicated. Today, I think the situation is different. Today, most political parties and political leaders think that if Nepal is to grow rapidly, then the most important initiative that they can take is the development of the hydropower sector.
Do you see any other forces - I mean other countries, besides the political parties - that are hindering the development of Nepal’s hydropower?
I am not aware of any such forces because I believe that all countries want peace and stability in Nepal. Nobody wants to see an unstable Nepal, least of all Nepal's neighbours, because if there is instability in Nepal, it will spill over to the neighbouring countries. Peace and stability in Nepal can only be attained if you develop economically.
Nepal and India have many mega projects conceptualized such as Pancheshwar and Koshi High Dam. But they all are stalled for one reason or the other, mainly because of suspicion of each other. What efforts are you making to take them ahead?
These are very important projects. For instance, if the Pancheshwor multi-purpose project is implemented, it will transform the economy of the far west of Nepal and of Uttarakhand in India. It will generate almost 6,000 mega watts of electricity, and give irrigation benefits and flood control benefits. It will be a huge investment. These projects are very important for both countries and we are committed to moving forward on projects like Pancheshwor. We are very close to establishing the joint project authority on Pancheshwor which will be located in Mahendranagar. These projects are now in the last stage of finalization. Once the Terms of Reference (TORs) are finalised, we will establish the Joint Project Authority. But I would also like to say multi-purpose projects are more complex. For these are storage projects and involve issues of rehabilitation, etc. It also involves irrigation; issues about sharing the benefits and costs of irrigation come up. These issues are a little more complex. The other projects that I mentioned earlier are run-of-the-river projects where water is diverted at one place but goes back to the same river at another place. Such projects are simple and straight forward. Multi-purpose projects involve long negotiations but I am very optimistic on projects like Pancheswar. We have also established the joint office for Saptakoshi project in Biratnagar that is carrying out some basic surveys and studies. But these projects will take long time. I think the run-of-the-river projects will be implemented earlier.
A few Nepali political parties and leaders who are vehemently opposing development projects, especially hydropower projects, being carried out with Indian investment are close personal friends of some influential political leaders of India. Why are not these Indian leaders able to convince their Nepali friends to change their behaviour? I don't think it is only India's responsibility but is also the responsibility of Nepal to convince her people and all her political parties about the importance of hydropower development. As far as India is concerned, by 2030 we will have a demand of 800,000 MW of electricity. So, even if Nepal's overall hydropower capacity is exploited, it will not be sufficient to meet India's demand. It is not that India has to rely upon only Nepali hydropower but has been looking at all other opportunities like nuclear and other alternate sources of energy. In order to sustain the growth of 9-10 percent per annum, India has to have adequate supply of energy and we will do everything we can to get this supply. As far as Nepal is concerned, India is very happy to work with Nepal and cooperate with Nepal because we think this is in our mutual interest. I believe that most of the political parties of Nepal also have similar view as India has. Those who don’t think this way may have their own reasons which are deep rooted in history, or misconceptions or prejudices about the relationship between Nepal and India. But I am ready to discuss with anyone who has reservations or difficulties or genuine problems. We would be happy to sit with them and explain to them how we look at the situation. We will try to convince them that these projects are in the best interest of not only India but also Nepal.
Haven’t you tried to meet and talk to them and convince them?
Certainly. I meet a lot of people. My colleagues meet a lot of people. On every occasion, we try to convince them. Recently the International Finance Corporation had organized a very good summit on hydropower in Kathmandu which was very well attended. The power secretaries of India, Nepal and Bangladesh were present. Your finance minister addressed the gathering. There was really a very good and detailed discussion on all these issues including some of the misconceptions and misperceptions. I believe very much that this has contributed to developing the political consensus and the environment in which these projects can go forward.
There are various comments being made about the Upper Karnali project. What is your take on them?
The Upper Karnali and many other projects have been awarded to Indian companies through global tenders and these have been supported by the international financial institutions. There have been talks going on between the promoters of Upper Karnali and the international organizations that are part of the World Bank system. I don't understand what the controversies are but sometimes in certain quarters in Nepal there has been a sense that these projects will be of advantage to India and somehow they will not be beneficial to Nepal. This is a complete misconception. There are many countries like Bhutan and Laos which are exporting power to India and Thailand respectively. You can see how the economies of these countries have transformed. And these are big projects with investments of over a billion dollar. Can you imagine an investment of more than a billion dollar coming to your country and how it will transform the whole region? I have not been to the Karnali area myself but I am told that there is a strong local support for this project. This is just one instance; but as I said I feel that today the situation is far more conducive for the development of hydropower in Nepal – especially run-of-the-river hydropower projects which are relatively easy. In India itself we ourselves have added more than 10,000MW of hydropower capacity over the past 8-9 years in Sikkim, Arunanchal Pradesh, Himanchal Pradesh and Uttarakhand. I don’t know if you have been to the Tehri Project in Uttarakhand; it’s a magnificent project. If you go there then you will see how it has transformed the whole area.
The implementation of Nepal-India Bilateral Investment Promotion and Protection Agreement (BIPPA) is now stalled. Also stalled is the signing of the planned Comprehensive Economic Partnership Agreement (CEPA) between Nepal and India. What is the likelihood of these agreements being revived or activated?
In order to strengthen economic cooperation between any two countries, you need certain basic ground conditions. First one is that the legal arrangements must be in place whether it is Double Taxation Avoidance Agreement or Bilateral Investment Promotion and Protection Agreement. Second is that we should have enough connectivity by road, by rail, by air and through power transmission lines. Once the legal and physical Infrastructure is in place then it is very easy for our private sectors to step up their cooperation and exploit the opportunities that exist in the two counties. There are enormous opportunities both in India and Nepal but in order to tap those opportunities, the legal and infrastructural arrangements have to be made. No investor is going to invest in a country which does not provide equal treatment, a level playing field and security – protection for the investment. So, BIPPA is basically for providing the necessary security to the foreign investors. In the case of Nepal, it has already signed BIPPAs with several countries. I do not know the reason behind the difficulty in ratification of the BIPPA with India but I hope that this will happen soon. Indian investors are coming here anyway. But once all the legal arrangements are in place, then I think many other investors will positively look at the opportunities in this country. Therefore, we hope that the agreement will be ratified in the near future.
CEPA has been signed between India and Sri Lanka. We are also looking for opportunities with ASEAN countries and beyond. So, we can certainly go on step by step basis. Right now we just want to get the basic arrangements in place and then we want to look at next generation of agreements.
Big Indian investors like GMR and Sutlej are reported to have made up their mind to withdraw from Nepal being irritated by the delays caused by the government as well as out-of-government forces. What are the solutions being tried?
I am not aware of this. As far as I know, the Indian companies that have secured survey license are very much interested in going forward with their investments. I am not aware that any of these companies has decided to withdraw and very much hope that they will remain here because I think this is one of the most promising areas for cooperation between India and Nepal. The two governments are doing everything possible to facilitate this cooperation between our private sector and the government of Nepal. We are now actively discussing a framework agreement for cooperation in the power sector including power trade. We are developing transmission lines between Nepal and India which will facilitate greater trade and exchange of power. As such, I feel that things are certainly moving positively.
Many of the proposed Indian investment projects are not moving forward as expected. What are main bottlenecks in your opinion?
Well, I would not say most of the projects but certainly some of the projects in the hydropower sector are taking some time. Yet I do not feel disheartened by this because it is the first time that Nepal is going for a major hydropower project. After the global tender, many Indian companies received survey licenses and they have been negotiating a Project Development Agreement with the Board of Investment. These negotiations take time because for Nepal it is the first time that they are going through this process. My understanding is that this process is moving ahead very steadily and we hope that we will see some positive outcome in the near future. Once investment licenses are issued, you can be sure that the companies will expedite the work relating to the implementation, such as financial closure, and then actual implementation of these projects.
Yes, it definitely has taken time and possibly things could have moved a little faster. But I basically feel that they are moving in the right direction. It is good that very detailed and in-depth discussions are taking place between the two sides to the mutual satisfaction of both the government and the private producers.
The protracted political situation in Nepal is blamed for lack of progress in many pending economic issues between Nepal and India. Cannot the economic issues be dealt independently from politics?
It is a very good as well as a difficult question. Perhaps, the reasons of the conflict also may have to do with the lack of economic progress and development. So, this is clearly a very critical area and I think that Nepal is now on the path to stability and in the process of building a new inclusive constitution where the aspirations of all sections, all communities of Nepal will be accommodated. I think this is the time for a very strong impetus to economic development. I recently met the Finance Minister of Nepal, who is credited for the first generation reforms and he is now talking about second generation reforms to kick-start the economy. Therefore, I think now the time is ripe. And the opportunities are very good. I also feel that there is a broad political consensus in Nepal in terms of economic policy and the direction in which the Nepali economy should move. I feel reasonably optimistic and hopeful that in the days and months ahead we will see some important economic policy initiatives that will provide a very strong push to economic growth.
What new projects of Indian investment are in the pipeline?
The government of India is involved in many major infrastructure development projects - such as the development of the postal roads in the Terai, integrated check posts, railway connectivity and the transmission line projects. These are major projects. I hope the Trauma Centre will be handed over very soon; it’s also one of the major projects. Also, I am sure that the Indian private companies which have invested in Nepal are looking at opportunities for further investments in the country. They have certain Intellectual Property Rights (IPR) related issues or labour law related issues. They feel that if these issues can be addressed satisfactorily, then their investment too will grow significantly. There are opportunities but more work is to be done to attract FDI not only from India but also from other countries.
Nepali businesses often complain that they are facing non-tariff barriers in transit, demurrage payment at Kolkata port and additional tariff in export to India. What is being done to address these issues?
These issues do come up time to time but all I can say in order to assure Nepali traders is that all issues will be examined, considered and appropriate steps will be taken to resolve them. Sometimes, a state government may put some tax or there may be some other trade related issues or transit related issue. This is something that has to be addressed and we are committed to resolve them. I also believe that once we have integrated check posts in place then many of these issues will be sorted out automatically and it will facilitate not only bilateral trade between India and Nepal but also Nepal's third country trade.
Nepal has also asked for transit through Visakhapatnam port. So, we hope that once that happens then the congestion at the Kolkata port will be eased and it will be easier for Nepal to import.
What is the progress on the request of Nepal to India for completely lifting the ban on INR 500 and 1000 denomination currency notes that go to India from Nepal?
This is a very serious issue. There are many agencies and organizations involved in taking a decision on this issue. First and foremost, there is fair amount of smuggling of fake Indian currency through Nepal to India and you may have noticed in the newspapers that large size seizures have been made. So, there is clearly a very concerted effort to pump in fake Indian currency and the problem is that if these high denomination notes are allowed then it will become much easier for fake Indian currency smugglers. There are security dimensions of this issue but at the same time I agree that many genuine traders and tourists suffer because of this. We are taking some steps to reduce this suffering. For instance, I recently have written to the chairman of State Bank of India and asked her to open exchange counters at the major check posts so that the Nepali workers returning from India with money can exchange their high denomination notes into lower denomination Indian currency or even Nepali currency. Similarly, we are also writing to the airlines that they must prominently display before any flight to Nepal that 500 and 1000 rupee notes are banned in Nepal. Our tourists are not aware of it and when they come here they face problem because they may be carrying 500 and 1000 rupee notes. This is a genuine issue. So there are inconveniences as well as the security angle. So, we will try our best to reduce the inconveniences for genuine passengers and traders to the extent we can.
That means there is no possibility of lifting the ban immediately?
That would be somewhat difficult to do especially because the smuggling of fake Indian currency continues unabated.
There is also a suggestion from experts to undertake special programmes to jointly develop the border areas of both countries. Has there been any progress in this?
Yes, of course as many of the projects I have mentioned are cross-border projects aimed at improving connectivity between the two countries. They also aim at facilitating the people living on both sides - whether it is the railway links, the development of roads especially the north-south linkages from the Hulaki Rajmarga to UP and Bihar, or whether it is the integrated check posts.
There is also a request that in the far western region where connectivity is limited between Utttarakhand and Kailali, Kanchanpur area, we should try and develop some infrastructure such as a new bridge or increase the number of opening hours of Sharda Barrage. There is also a request to look at the possibility of using Tanakpur Barrage for the movement of vehicular traffic. So, all these are being looked at and being implemented. Once these projects are completed – I admit that the pace of implementation leaves a lot to be desired - the Indo-Nepal border will be very different from what it is today.
In recent years, China has been showing growing interest in Nepal including in hydropower and other capital intensive projects. How has India taken this?
China is taking interest in Nepal as well as in a lot of countries of Asia, Europe and Latin America. China is the second largest economy in the world and probably the largest trading partner for many countries. So, this is nothing surprising. India is also a rapidly growing economy and we are also stepping up our engagement not only in Nepal but in many other countries whether it is through our ‘look east’ policy in the ASEAN region or our relationship with China, Japan and Korea. This is the age of globalization and competition. Every country is looking for opportunities and economic advancement. So this is not something that anyone should be worried about. As far as projects are concerned, all large mega projects require large financing. Therefore, financial arrangements have to be made for financing and the Engineering, Procurement and Construction (EPC) work. All companies from all the countries are free to participate and work in these projects. I think the important thing is to make sure that these projects are developed so that they contribute to the Nepali economy and contribute to the Nepal-India economic cooperation. Who develops these projects is important, but is not the principal issue. We are happy to work with all the countries who are interested in developing these sectors in Nepal.
There was a lot of discussion to develop Nepal as a transit point for trade between India and China. Why is this proposal now in the back burner?
India raised this issue in one of the meetings in the early 2000s at one of the Inter-governmental Committee (IGC) meetings. At that time we raised two issues. One issue was Nepal providing the transit for movement of Indian goods between place A and place B in India through Nepal because the infrastructure here was better at that time. The second issue was possibility of Nepal as a transit between India and China. Historically, the Malla Kingdom of Kathmandu became rich through the trade between India and Tibet. So, there is no reason why this cannot be revived. We have border trade with China. Most of Nepal's trade with China also goes through India. It does not go through the land route and actually goes through Kolkata and the Shanghai ports. This is happening because of lot of demand for the products in the eastern part of China and better connectivity through the sea ports. I don’t know how economically viable and financially beneficial it will be to use the overland route from India through Nepal. But this certainly can be looked at. As of now I don’t know what percentage of Nepal’s trade with China takes place through the land route. I sense that most of it takes place through the sea route.
Is there any other issue which you would like to highlight or discuss?
I would like to see much greater cooperation between private sectors of Nepal and India and want to see much greater exchange between the trade organizations and chambers here and those in India. I want more participation of both countries in each other's trade fairs and more exposure of Nepali products in India. The handicrafts of Nepal are of world-class and India would be a huge market for the beautiful handicrafts that are made in the Kathmandu valley. So, we were very happy to send a team of 20 Newari craftsmen to New Delhi Haat recently to display their products. I believe there is great potential for handicrafts, for high value agricultural products and medicinal herbs. There are great opportunities in the field of service sectors such as tourism, medical tourism and educational facilities. You have such a beautiful country with an excellent climate. There is no reason why Nepal cannot be developed as a hub for the service sector. There has to be a far greater engagement between the private sectors of the two countries than is the case at present. More promotional efforts by Nepal in India – whether it is in tourism or other areas - would certainly be useful in attracting Indian companies to look at the opportunities available in Nepal. Today, Indian companies are investing everywhere – in the US, Europe, Asia etc. So, there is no reason why they would not invest in Nepal, which is just an hour’s flight from New Delhi.
